Whether you’ve been selling your products on Amazon for years or you’re just starting out, you’ve probably wondered if 1P or 3P is the best selling model for your brand. In a 1P or first-party relationship, Amazon buys your product wholesale and handles most of the selling details. In a 3P or third-party relationship, you’re an independent seller on Amazon’s marketplace, which gives you both more control over your brand and more responsibility for logistics.
There’s no “best way” to sell on Amazon—whether 1P or 3P is the best option for you depends on your products, your long-term goals, your company’s capabilities, and whether you partner with a 3P exclusive seller. Let’s talk about the pros and cons of each model so you can make the best decision for your brand.
What we’ll cover:
There are quite a few perks to selling your products directly to Amazon. For one, Amazon is a well-trusted brand, and consumers may be more likely to trust a product if the product page states it’s sold by Amazon, like in the screenshot below.
In a 1P relationship, your products are automatically eligible for Amazon Prime and two-day shipping, giving you instant credibility and appeal. (You can also make your products Prime eligible in a 3P relationship, but it takes more effort on your part, and it must be done through Seller Fulfilled Prime or FBA Onsite.)
In addition to the appeal to customers, 1P is a simpler option when it comes to logistics. When you sell your products wholesale to Amazon, Amazon handles taxes, ASIN optimization, taxes, and customer service. Without a solid partner or ecommerce team, these details can be overwhelming to handle on your own.
Amazon gives some exclusive benefits to its 1P vendors, including some placement priority, advanced analytics tools, and product display ads displayed on product detail pages. However, these small benefits may not actually make that big of a difference, and historically, exclusively 1P initiatives eventually start moving to 3P as well.
Using a 1P model may also be the most price efficient option for some brands. If your products have an average selling price of around $10, 1P prices are hard to beat. Selling a $10 product through FBA as a 3P seller could cost you 30-40% in fees. It’s also a plus to have bulk purchase orders from Amazon, especially since Amazon takes on all of your inventory risk after purchasing it.
Despite the perks and simplicity of a 1P relationship, this model makes it difficult for you to maintain control of your products, prices, and brand. In a 1P model, Amazon has the right to sell your product at any price they see fit, even if that’s below your established Minimum Advertising Price (MAP).
Your profit margins may also suffer if you sell directly to Amazon since you’re selling your products at wholesale instead of retail prices. You’ll also get paid less frequently, at either 30, 60, or 90 day intervals after invoices are submitted, compared to twice monthly in a 3P relationship.
Another downside to selling 1P is that you have little control over how much of your inventory is available on Amazon at any given time. Amazon may suddenly stop ordering your inventory or drop you as a 1P seller altogether. For new product releases and other high-risk situations, this is especially inconvenient, as Amazon waits to order your product until the listing has enough traffic, and even then only orders one or two cases of product at first.
3P sellers were responsible for 54% of paid Amazon units in Q3 2020. Selling on Amazon as a third-party seller is an increasingly popular option for brands, and it’s not hard to see why. Even though becoming a 3P seller may seem like more work upfront, it ultimately gives you more flexibility and control, stronger brand presence, and better data access.
The 3P model gives you more control in virtually every aspect of the selling process, including pricing, inventory, and product listings. You may still have to lower your price to win the Buy Box if you’re competing with other 3P sellers, but you decide if and how much to lower your product prices, not Amazon. This level of control and consistency is much better for your brand’s reputation, and it helps you avoid price erosion and other issues that arise when Amazon lowers 1P product prices below MAP.
This increased control also applies to your product’s inventory. As a seller, you choose how much inventory to list. You have the freedom to stock up for new product releases and promotions, which isn’t possible in a 1P relationship. Since you’re in control of your inventory, you can also share inventory across marketplaces when necessary.
A 3P relationship also allows you to better optimize your Amazon content to tell your brand’s story, as seen in the screenshots below, instead of leaving the task to Amazon. 3P sellers also have access to detailed data and insights that aren’t available to 1P vendors.
Of course, there are also downsides to a 3P relationship. Taking control of your inventory means taking responsibility for all the associated inventory risks, since Amazon will only pay you for the units sold. It also means you have to stay on top of stock inventory levels, since Amazon doesn’t do inventory forecasting for 3P vendors. This makes you directly responsible for creating purchase orders and handling inventory logistics.
3P sellers are also responsible for their own customer service—you may have your account suspended if you don’t respond to customers in 24 hours, including weekends and holidays—and for filing taxes. This can get complicated, since Amazon FBA centers ship inventory to Fulfillment Centers in several different states, and you’d be liable in the Tax Nexus to file taxes with each state you have inventory in.
Even though selling as a third-party will likely increase your margins, 3P sellers have to pay additional fees to Amazon—a $39.99 monthly fee for the professional plan and $0.99 per unit for the individual plan. You’re also subject to account suspension if you don’t meet Amazon’s shipping, labeling, and preparation guidelines.
You can only become a 1P seller through a direct invitation from Amazon. To become a 3P seller, the first step is setting up a Seller Central account. You’ll then provide relevant information and verifications before getting your account approved and finally listing and shipping your products. This eBook by Amazon provides more detailed information on signing up.
While deciding between a 1P or 3P relationship is a solid start,selling model strategy is a bit more complicated than that. In fact, there are 7 common selling models brands may consider. Two of these models are the basic 1P and 3P models we’ve already discussed. Other models include a 3P Unmanaged model, which means there’s no active management of your brand; a 2P model, which is the Fulfilled by Amazon (FBA) model; a hybrid model, which leverages both 1P and 3P strategies; a 3P network model, in which you create a network of authorized sellers; and a 3P partner model, in which you partner with one exclusive ecommerce seller.
If you want to enjoy the freedom and control of a 3P relationship without having to worry about complex logistics, you may benefit from a 3P partner model. Pattern uses a 3P exclusive seller model because it gives brands the freedom and control unavailable through a 1P relationship while also taking on the logistics and risks that make 3P selling intimidating.
When you choose Pattern as your authorized wholesale partner, we buy your inventory and resell it on Amazon as an authorized seller. Once we buy your product, we’re responsible for all inventory risk, and we help you optimize your content and advertising while maximizing your brand protection and brand global distribution. Our sophisticated inventory forecasting systems help us predict your inventory needs, and our experienced teams handle everything from taxes to customer service.
Unlike when you sell to Amazon in a 1P relationship, we’re eager to involve your brand every step of the way, including when it comes to branding and new product launches. We respect your brand by following all brand pricing guidelines and committing to never drop below MAP policies.
Interested in increasing your margins by transitioning to a 3P relationship and partnering with Pattern? Get in touch today.
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Entering the ecommerce landscape is a huge undertaking for any brand—it usually requires a large investment in resources and expertise to really be successful. Any brand can quickly get in over their heads trying to navigate the nuances of SEO, fulfillment and logistics, distribution control, listing optimization, and meeting the numerous other requirements and administrative tasks to show up well on marketplaces.
Unfortunately, because it’s so easy for third party, gray market, and unauthorized sellers to obtain and sell products online, many brands find themselves pressured to execute an ecommerce plan without the right resources to succeed on marketplaces and their other channels.
So, for brands looking to enter the ecommerce space or improve their current and future performance, it makes sense to partner with an ecommerce consultant.
Pattern’s global presence and proven success with hundreds of brands has allowed us to develop highly effective ecommerce consulting services. We can guide your brand to navigate issues both large and small in marketplaces worldwide. To maximize your ecommerce efforts, you’ll need to understand what an ecommerce consultant does and how to select one who drives the right value for your brand and products.
An ecommerce consultant is a specialist in the ecommerce space who can give you personalized guidance on how to market your products and grow their presence on digital marketplaces.
An ecommerce consultant should be able to analyze your brand, audience, category, opportunity, and current roadblocks and help you understand how to utilize your resources (or what resources are missing) to be most effective in capturing your opportunities in the ecommerce space.
Not sure how to evaluate a consultant? Here are 4 key attributes to look for as you make your choice.
At Pattern, we prioritize brand obsession for a reason—we know that a brand-centered mindset makes a crucial difference in the outcomes and results our partners achieve. So in our experience, when you begin your search for an ecommerce consultant, it’s important to look for a partner who is specialized in ecommerce, invested in the product, and passionate about helping brands build and improve their strategies. Typically, this means finding someone that consults exclusively for ecommerce marketplaces, rather than choosing a consultant who offers many different services.
It’s also important to avoid choosing a consulting partner who can’t deliver the right experience for your brand. The best indication of whether your potential consultant can do that is to review their history, data, and results with other brands. Ask if they’ve helped others in your selling category, if they’ve solved specific issues your brand is facing, and why they feel you are a good fit. The key is to leave the conversation feeling confident that you understand your consultants’ capabilities and whether or not they match up with your needs.
It’s best to pick a consultant who knows how to guide a brand onto and through multiple marketplaces worldwide. You’ll want to take a look at your long-term strategy and think about the regions and platforms you’re currently on and where you might want to take your brand in the future. If your consultant is truly great at what they do, they’ll be able to help you perform well enough with your current product roadmap that it’ll be a no-brainer to expand your presence at the right time.
The most effective partnership with an ecommerce consultant will be able to give you both recommendations and point you to solutions for making those changes in your planning, processes, and execution. Your time and money is valuable, so you want to make sure that you’re spending it as efficiently as possible as you follow your consultant’s advice. So, before you commit to an ecommerce consultant, ask about the resources and concrete solutions they typically recommend to the brands they work with.
Finding an ecommerce consultant that checks the boxes can be a difficult task. At Pattern, our entire focus and drive centers around giving brands the tools and resources they need to succeed on domestic and international ecommerce marketplaces.
With over 100 global ecommerce consultants across 10 global offices, we have the right tools to partner with brands across the world to achieve better ecommerce success. We give specialized advice, then make sure our partners have all the adequate SEO, social media, CRM, Amazon multi-channel fulfillment services, and ecommerce outsourcing services they need.
Interested in ecommerce consulting services? Set up a call here to learn what Pattern can do for your brand on global marketplaces.
If you’re interested in expanding your brand internationally, you’re probably familiar with Tmall. Tmall is Asia-Pacific’s (APAC) largest marketplace, and indisputably the biggest ecommerce powerhouse in the world. It represents a huge opportunity for many brands, but entering the space is also a big challenge to take on.
At Pattern, we recommend brands looking to enter international markets should first focus on dialing in their domestic presence. Once you’re satisfied that your brand is well-represented and optimized locally, you’re ready to think about tackling new regions, like APAC, and launching on marketplaces like Tmall. Our top advice for entering Tmall is to understand and strategize around its three most important metrics: service, delivery, and content.
Service, delivery, and content ratings are the three elements that make up Tmall’s Detailed Seller Rating (DSR) score. Each component is scored on a scale of 1-5 that is displayed publicly on your brand’s Tmall flagship store page. This is meant to help consumers decide whether or not to purchase your products.
DSR scores are important because they’re highly influential in driving conversions—customers see DSRs as a way to quickly understand if a brand is trustworthy and worth buying from. They also matter quite a bit to Tmall itself—they monitor these scores and will take action to close flagship stores with low scores.
Let’s go over each element of the DSR score and some steps you’ll need to take to achieve high ratings.
Service is a huge ecommerce component in APAC marketplaces. In most other regions, product listings are static, and consumers use content and reviews to make a decision about what to purchase. On Tmall, consumers want to interact with your brand and test its validity before buying—each transaction takes at least one human interaction to convert.
So, to get a great service rating, you’ll need to have a large, established customer service team dedicated to Tmall sales that can offer real, human touchpoints and very fast response times. To get an idea of the speed your agents should be capable of producing, in our Tmall benchmarking exercise, 92.5% of brands’ customer service agents replied to queries via live chat within 30 seconds, 5% replied within one minute and the remaining 2.5% of brands took longer than a minute. So, look for a Trade Partner (TP) that has enough resources to compete with those numbers, support your sales, and maintain a good DSR score.
Another thing you’ll really want to focus on is a high-quality delivery experience for consumers. As in other regions around the world, Tmall consumers have high expectations for their delivery experience. In our Chinese consumer polling report that targeted consumers buying from Tmall Global, we found that 6% expected same-day delivery, 15% expected next-day delivery, and 46% expected 2-5 day delivery.They want to receive their products fast and they want the products to be undamaged and pristine upon arrival.
So, to achieve a high score for your delivery capabilities, we highly recommend partnering with a TP or ecommerce accelerator like Pattern (which serves as a TP) who has the ability to facilitate your distribution. Make sure your TP has the right infrastructure in place to support high-quality logistics experiences for all of your consumers—they should have an established, well-oiled delivery process in place and the capability to fluidly add you to their current fulfillment system.
As in every digital marketplace, content is a huge component of the decision-making process for consumers on Tmall—they can’t touch your product with their hands or see it in person before buying, so it’s important they’re empowered to make a good decision on whether or not to purchase based on the videos, images, and copy.
The goal is to make all of the content and relevant information on your flagship site easily-accessible—consumers should be able to visit your page and make a decision about whether or not to buy without navigating to a new site/page and taking their conversions with them. Images with text and extensive product details are a great way to do this, as well as making sure your service team can speak to all aspects of your product with any consumers (via text or chat).
As the world’s foremost brand partner for ecommerce acceleration, Pattern truly understands the significance of international expansion. With regional offices around the world, Pattern knows how to successfully launch and grow brands on Tmall and other marketplaces, with the data, insights, and marketplace intelligence to build the metrics that matter.
It’s important to have a fantastic brand presence, a knowledgeable guide, and a clear go-forward strategy for your best chance at success. With our in-country resources, expert teams, and extensive experience in growing brands around the globe, Pattern can help you get there.
Set up a call to get your international expansion strategy in motion.